Microsoft's Wilsonville factory in 2015, before production began. The company stamped "Manufactured in Portland, OR, USA" on each Surface Hub. Now, manufacturing is apparently moving to China.

Microsoft's Wilsonville factory in 2015, before production began. The company stamped "Manufactured in Portland, OR, USA" on each Surface Hub. Now, manufacturing is apparently moving to China. (Microsoft photo)

Just two years ago, Microsoft cast its Wilsonville factory as the harbinger of a new era in American technology manufacturing.

The tech giant stamped, "Manufactured in Portland, OR, USA" on each Surface Hub it made there. It invited The New York Times and Fast Company magazine to tour the plant in 2015, then hired more than 100 people to make the enormous, $22,000 touch-screen computer.

Panos Panay, the vice president in charge of the Surface product group, traveled from corporate headquarters in Redmond, Washington, to tell the staff that Microsoft was moving production to the same place it makes all other Surface products.

Though workers present say he didn't disclose the location, Microsoft has previously said it makes its other Surface computers in China.

The company hasn't explained, in public or to its Wilsonville employees, why it gave up on domestic manufacturing so quickly and didn't respond to repeated inquiries for comment. But the only thing surprising about Microsoft's decision is that it tried to make its computers in the U.S. in the first place.

"Domestic manufacturing is difficult because costs are high and qualified engineers are scarce," wrote Mitsuru Igami, a Yale economist, in an email.

Microsoft is just the latest to go, following an exodus by Tektronix, InFocus, Hewlett-Packard and many others that used to employ substantial numbers of Oregon factory workers.

Originally, tech companies went overseas in search of low labor costs. And that's still a major pull, according to Igami. But eventually a critical mass of manufacturers arrived and brought the supply chain with them. Component parts, industrial supplies and other production essentials are now more readily available in China and Vietnam than they are in the Willamette Valley.

Microsoft may have thought it was doing something different with the Surface Hub, a niche product that sold for ten times the price of a laptop. It designed the jumbo, touch-screen computer for conference rooms and command centers. The company apparently concluded that it could be economical to make the high-cost, low-volume computer in Oregon.

"When you go through the math, (offshoring) doesn't pencil out," Angiulo said. "It favors things that are small and easy to ship, where the development processes and tools are a commodity. The machines that it takes to do that lamination? Those only exist in Wilsonville. There's one set of them, and we designed them."

Surface Hub production was plagued from the start, though. Microsoft delayed manufacturing twice, pushing back the launch by six months, and raised the price on each model by $2,000.

It's not clear what caused those problems, or if they factored into Microsoft's decision to send the work overseas. Microsoft continues to market the Surface Hub and has limited competition in the market.

The decline in domestic tech manufacturing appears to have eased somewhat in recent years, in both Oregon and nationally. Washington County continues to be Intel's largest and most advanced manufacturing site in the world, in part because semiconductor production is heavily automated and labor is a relatively small portion of the total manufacturing cost.

Nike, meanwhile, has hinted repeatedly that it plans to use advanced technology to augment low-cost manual labor in Asia and do more manufacturing in the U.S.

Josh Lehner, an economist for the state of Oregon, said domestic manufacturing does best when it adds value to a finished product, often in a middle stage between raw materials and final assembly. And, he said, rising labor costs in Asia, coupled with falling manufacturing wages in the U.S., have helped stem the outflow of American factory jobs.

"Those are only going to point toward better production value in the U.S.," Lehner said. "That relative, comparative loss is probably over for now."

Still, it's far more common for companies like Microsoft to export factory jobs than to bring them back. The Wilsonville employees say Microsoft offered them severance, which varied by their level in the organization, and offered a handful of workers design jobs at the company headquarters in Redmond.

"Re-shoring" stories like the tale Microsoft peddled in 2015 are little more than public relations fakery, said Igami, the Yale economist. He called it "lip services or window-dressing to please politicians and the general public."

And Igami said the current political push in Washington is doing little to change the situation. He suggests Americans should be more open to "geeks and foreigners," and embrace science and engineering. He said it will take time and fundamental changes to reverse the loss of domestic production work.

"Developing a manufacturing base is a long-term thing (takes a decade or two)," Igami said. "The U.S. presidency is only four or eight years, so presidential tweets can't reverse the economic fundamentals of offshoring."